Tag Archives: OECD

G20’s shaky growth base

For the sake of global prosperity, you have to hope that the pro-growth commitments made by the visiting national leaders at Brisbane’s G20 are of a higher quality that those proposed by the host.
Laudable as the G20 goal is to boost collective growth among member countries by 2.1 per cent by 2018, it comes with a big asterix attached. There are measures whose benefits are difficult to quantify. There are measures that are contingent on the actions of others to come to fruition. There are measures whose prospects are definitely cloudy.
And then there are measures for which any claim of benefit is dubious, at best.
In this category belongs two measures the Australian Government has included in its contribution to the G20 growth goal – the introduction of a $7 co-payment for GP, pathology and diagnostic imaging services, and the deregulation of university fees. (Note of disclosure: I am currently employed by the Australian Medical Association, which is campaigning against the Government’s co-payment proposal).
It is hard to see how it can be argued that either, particularly the co-payment, will enhance growth.
Both are essentially exercises in cost-shifting – removing a liability from the Commonwealth’s books and putting it on to individuals.
In the case of the co-payment, patients face an extra $7 for each visit to their GP, while doctors are set to lose $5 from each Medicare rebate and incur extra practice costs arising from increased red tape and more patient bad debts.
In the case of university fee deregulation, an increased proportion of education costs are dumped onto students as a liability against future earnings – in effect, an increase in the tax on higher education.
Leaving aside arguments about the equity or economic efficiency of these policies, the grounds on which either could be said to contribute to growth appear weak.
It has been demonstrated that cost is a consideration for some when seeking health care, so upfront charges will discourage a proportion from seeing their GP – in fact, this was one of the Government’s explicit aims when announcing the policy.
Furthermore, though some patients might be going to see their doctor for what the Government considers to be frivolous reasons, most have legitimate health concerns.
Some of these might resolve themselves. But deterring people from seeking timely care raises the risk their health will deteriorate further and their problems become more complex, raising the likelihood of more dramatic and costlier care later on. Care in hospitals in multiple more times expensive than in a family doctor’s surgery.
Regarding university fees, it defies all that we know about price signals and human behaviour to suggest that ratcheting up university course fees will have no effect on demand.
Sure, university degrees are a sound investment in enhanced future earning capacity, so the incentive for individuals to incur larger debts for the lifelong advantage a degree confers is strong.
But as the cost of education goes up and wages growth slows, the cost-benefit equation because more finely balanced, and the weight given to other options increases – particularly from the viewpoint of someone with limited financial resources.
The Government argues that students won’t be required to begin repaying their debts until they start earning reasonable money, so any deterrence is overstated.
But even if higher fees don’t discourage many, the debts students will carry through much of their adulthood will have other significant economy-wide effects, including delaying the age at which they might begin a family or buy a house. These are major drivers of consumer spending, and by delaying or diminishing these activities, university fee deregulation will help undermine the strength of a major component of growth.
(The policy is also likely to turbocharge the brain drain, and heavily-indebted graduates increasingly look for better-paid opportunities offshore).
Prime Minister Tony Abbott said the fact that the OECD and the IMF will audit the progress of G20 countries in fulfilling their growth commitments will provide robust reassurance that the growth goal will be met.
But don’t expect the umpires to red card countries not seen to be pulling their weight.
Realpolitik means it is highly unlikely any G20 member will be marked down, especially when there are so many plausible get-out clauses and other excuses that countries can invoke.
Let’s face it, if the Australian Government can get away with calling a GP co-payment a growth measure, it is a pretty low base from which to start.

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OECD: global recovery is ‘real’ but weak

If you are after economic growth, then there’s really on one place to look – Asia (ex-Japan).

In its latest projections for global and large economy growth, the Organisation for Economic Cooperation and Development has revised down prospects for much of the world.

Australia is one of the few brighter spots in the developed world – the economy is expected to grow by 2.5 per cnet next year, and 3 per cent in 2015.

But the OECD’s outlook is premised on a number of important assumptions, not least that the Abbott Government doesn’t implement any more spending cuts than have already been factored in, and that the Reserve Bank of Australia continues to hold interest rates down.

The OECD’s far-from-buoyant view of the world economy in May has been replaced by an even less optimistic outlook, shaped by a series of disappointing results in some emerging economies and several disturbing developments – not least the ridiculous near-debt default in the US.

Nonetheless, such crazy political brinkmanship to one side, OECD Secretary-General Angel Gurria says the recovery underway in the global economy is “real” – you just might have trouble noticing it much for the next little while.

In figures released overnight, the OECD predicts global growth will accelerate from 2.7 per cent this year to 3.6 per cent in 2014 and 3.9 per cent in 2015.

The picture is even less impressive across the OECD member countries – average growth of 1.2 per cent this year, 2.3 per cent in 2014, and 2.7 per cent in 2015.

The US is expected to do ok – growing by 3.5 per cent by 2015, with unemployment headed down close to 6.1 per cent by December of that year.

But the outlook for the Euro area and Japan remains miserable – growth won’t break above 2 per cent in the former and will be well below 1 per cent in the latter.

Underlining the human tragedy of the deep recession in much of Europe, the Euro area unemployment rate is still expected to be close to 12 per cent by the end of 2015.

The really sobering thought in looking at these projections, is that they rely on so many things going right – not least that politicians in the US, Europe and elsewhere, don’t engage in yet more bouts of indulgent and destructive policies that undermine what financial stability there is or erect further barriers to international trade.

Risks abound.

The big plus for Australia is that China is expected to be one of the few bright spots in the global outlook, sustaining annual growth at or above 7.4 per cent over the next two years despite the deadweight of Europe and Japan.

Reflecting this, the OECD is a bit brighter than the Reserve Bank in its outlook for Australia – expecting that growth in the country will accelerate from 2.5 per cent next year to around 3 per cent in 2015 as activity in the non-mining sectors of the economy “gradually strengthens”.

But, it warns, this is outcome is far from a given.

It has warned the Abbott Government against any further fiscal tightening than has already been planned, and is advising the RBA to maintain its current accommodative monetary policy stance.

On taxation, it backs the business sector’s bid for a lower corporate tax rate.

On housing, it advises a shift to “more efficient” real estate taxation, which is code for the states to abolish stamp duties.

It will be interesting to see if the Government’s Commission of Audit is paying attention.

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